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Another 99 Pieces of Unsolicited, (Possibly) Un-googleable Startup Advice

diving, deep end

Voila, the fourth installation of 99 soundbites I’ve been fortunate enough to collect over the past year. The first four of what I imagine of many more to come. Each of which fall under one of the ten categories below, along with how many pieces of advice for each category:

  1. Fundraising (30)
  2. Cash flow levers (23)
  3. Culture (11)
  4. Hiring (9)
  5. Governance (7)
  6. Product (5)
  7. Competition (5)
  8. Brand/Marketing/GTM (4)
  9. Legal (1)
  10. The hard questions (4)

You can also find the first three installments of 99 pieces of advice for both founders and investors here. Totaling us to a total of 396 pieces of advice.

But without further ado…

Fundraising

1/ If you’re an early stage startup, expect fundraising to take at least 3-4 months to raise <$1M. If you’re on the fast side, it may take only 2 weeks. – Elizabeth Yin *timestamped April 2022

2/ If you’re going to raise a round over 6-12 months, it often doesn’t seem fair that your first commits have the same terms as those who commit 6 months later, since you’ve grown and most likely have more traction at the time. As such, reward your early investors with preferred terms. Say you’re raising a $1M round. Break the round up to $300K and $700K. Offer a lower cap on SAFEs for the $300K. “Tell everyone that that offer will only be available until X date OR until you hit $300k in signed SAFEs. And that the cap will most likely go up after that.” Why? It lets you test demand and the pricing on the cap – to see if you’re cap is too high or too low on the first tranche. – Elizabeth Yin

3/ As a startup in recessionary times, you have to grow your revenue faster than valuations are falling to make sure you raise your next round on a mark up. Inspired by David Sacks and Garry Tan. *timestamped April/May 2022

4/ There’s only going to be 1/3 the amount of capital in the markets than in 2020 and 2021. So plan accordingly. If you’re not a top 0.1% startup, plan for longer runways. Fund deployments have been 1-1.3 years over the past 1.5 years, and it’s highly likely we’re going to see funds return back to the 3-year deployment period as markets tighten. *timestamped May 2022

5/ B2B startups that have the below disqualifiers will find it hard to raise funding in a correcting venture market:

  1. No to little growth. Good growth is at least doubling year-over-year.
  2. Negative or low gross margins. Good margins start at 50%.
  3. CAC payback periods are longer than one year.
  4. Burn multiples greater than 2 (i.e. You’re burning $2 for every dollar you bring in). A good burn multiple is 1 or less.
    – David Sacks

6/ Beware of “dirty term sheets.” Even though you’re able to get the valuation multiple you want, read the fine print for PIK dividends, simple “blocks” on IPO/M&A, and 2-3x liquidation preferences. Inspired by Bill Gurley.

7/ “This came at a very expensive valuation with certain rights that should not have come with it — like participating preferred, which is they first get their money out and then they participate in the rest, which was OK for the earlier rounds, but not for the later ones.” – Sabeer Bhatia in Founders at Work

8/ In a bear market, public market multiples are the reference points, not outlier private market multiples. Why? Public market multiples are their exit prices – how they return the fund. It matters less so in bull markets. – David Sacks

9/ Don’t trust the “why”, trust the “no.” Investors don’t always give the most honest responses when they turn down a company.

10/ If you inflate your projections, the only investors you’ll attract are dumb investors. They’ll be with you when things are going well and make your life a living nightmare when things aren’t, will offer little to no sound advice, and may distract you from building what the market needs. By inflating your projections, you will only be optimizing for the battle, and may lose the war if you can’t meet or beat your projections.

11/ VCs will always want you to do more than you are pitching. So if you’re overpromising, they’re raising their expectations even more down the road.

12/ Five questions you should answer in a pitch deck:

  1. If you had billboard, what 10 words describe what you do?
  2. What insight development have you had that others have not?
  3. How you acquire customers in a way others can’t?
  4. Why you?
  5. What you need to prove/disprove to raise next round?
    – Harry Stebbings

13/ The longer you’re on the market, the greater the differential between expectations and reality, and the harder it is over time to close your round. Debug early on in the fundraising process (or even before the fundraising process) by setting and defining expectations through:

  1. Preempting FAQs, by defusing them early on.
  2. Leveraging market comparables. You don’t have to be good at everything, but you have be really really amazing at one thing your competitors aren’t. It’s okay if they’re better than you in other parts.

14/ You should reserve 10% of your round to allocate to your most helpful existing investors. Reward investors for their help. – Zach Coelius

15/ If your next round’s investor is willing to screw over your earlier investors out of pro rata or otherwise. After they leave, the only one left to screw over is you. – Jason Calacanis

16/ “Nobody’s funding anything that needs another round after them.” – Ben Narasin quoting Scott Sandell

17/ “When a VC turns you down for market size, what they are really saying is: I don’t believe you as the founder has what it takes to move into adjacent and ancillary markets well.” – Harry Stebbings

18/ When raising from corporates, be mindful of corporate incentives, which may limit your business and exit opportunities. “I’ve often seen the structure just simply be a SAFE with no information rights. No Board seats. Check sizes that are worth < 5% ownership. No access to trade secrets.” – Elizabeth Yin

19/ LOIs mean little to many investors, unless there’s a deposit attached to it. A customer must want the product so much they’re willing to take the risk of putting money down before they get it. 1-5% deposit would be interesting, but if they pay the product in full, you would turn investor heads. – Jason Calacanis

20/ “The most popular software for writing fiction isn’t Word. It’s Excel.” – Brian Alvey

21/ “Ask [prospective investors] about a recent investment loss, where the company picked someone else. See how they describe those founders, the process, and what they learned. This tells you what that investor is like when things don’t go their way.” – Nikhil Basu Trivedi

22/ “Founders, please hang onto at least 60% of the company’s equity through your seed raise. Series A or B is the first time founder equity should dip below 50%. I’ve seen cap tables recently where investors took too much equity early on, creating financing risk down the road.” – Gale Wilkinson

23/ “One of the worst things you can say to a VC is ‘we’re not growing because we’re fundraising.’ There are no excuses in fundraising.” – Jason Lemkin. Fundraising is a full-time job, but when you’re competing in a saturated market of attention, it’s you who’s fundraising, but not growing, versus another founder who’s also fundraising and is growing.

24/ Extraordinarily difficult fundraise = extraordinary investment 7/10 times. – Geoff Lewis

25/ The goalposts of fundraising (timestamped Oct 20, 2022 by Andrea Funsten):

  1. Pre-seed: $750K-1.5M round
    • Valuation: $5-10M post (*She would not go over $7M)
    • Traction:
      • A working MVP
      • Indications of customer demand = have interviewed hundreds of potential customers or users
      • 2-5 “Design Partners” (non-paying customers or users)
  2. Seed: $2-5M round
    • Valuation: $12-25M post (*She would not go over $15M)
    • Traction:
      • $10-15K MRR, growing 10% MoM
      • 6-12 customers who have been paying for ~6 months or more, a few that would serve as case studies and references
      • Hired first technical AE
  3. Series A: $8-15M round
    • Valuation: “anyone’s guess”
    • Traction:
      • $1.5M in ARR is good, more like $2M
      • 3x YoY growth minimum, but more like 3.5x • 12-20 customers, indications of ACV growth
      • Sales team in place to implement the repeatable sales playbook

26/ Don’t take on venture debt unless you have revenue AND an experienced CFO. – Jason Calacanis

27/ When you are choosing lead investor term sheets:

  1. For small VC teams (team <10ppl): Make sure your sponsoring partner is your champion. Why does investing in you align with their personal thesis? Their life thesis? Which other teams do they spend time with? How much time do they spend with them? When things don’t go according to plan, how do they react? How do they best relay expectations and feedback to their portfolio founders?
  2. For larger platform teams (team >10ppl): Ask to talk to the 3-5 best people at the firm. And when the investor asks you to define “best”, ask to talk to their team members who best represent the firm’s culture and thesis. Why? a/ This helps you best understand the firm’s culture and if there’s investor-founder fit. b/ You get to know the best people on the team. And will be easier to hit them up in the future.

28/ “If you are a category-defining company, you will always have a TAM question, if the category is defined by somebody else, you will not have a TAM question.” – Abhiraj Bhal

29/ “[Venture] debt typically has a 48-54 month term, as follows: 12 months of a draw period (ballooned to 18 months over the last few years), to which you can decide to use it or not 36 months to amortize it after that 12 months. The lender at this stage is primarily underwriting to venture risk, meaning they are relying on the venture investor syndicate to continue to fund through a subsequent round of financing.” This debt is likely to be paired with language that allow the fund to default if investors say they won’t fund anymore and/or just not to fund when asked. “They typically are getting 10bps-50bps of equity ownership through warrants. Loss rates must be <3-4% for the model to work.” If there’s less than 6 months of runway or cash dips below outstanding debt, then as a founder, expect a lot of distracting calls. – Samir Kaji

30/ The best way to ask for intros to investors is not by asking for intros, but by hosting an event and having friends invite investors to the event. There’s less friction in an event invite ask than an investor intro ask. The reality is that the biggest investors are inundated with intro requests all the time, if not just by cold email too.

Cash flow levers

31/ The bigger your customers’ checks are (i.e. enterprise vs. SMB vs consumer), the longer the sales pipeline. The longer the sales pipeline, the longer you, the founder, has to stay the Head of Sales. For enterprise, the best founders stay VP of Sales until $10M ARR. For SMB, that’s about $1-2M ARR, before you hire a VP of Sales. Inspired by Jason Lemkin.

32/ “‘I have nothing to sell you today — let’s take that off the table and just talk,’ he would say. ‘My goal is to earn the right to have a relationship with you, and I know it’s my responsibility to earn that right.'” The sales playbook of David Beirne of Benchmark Capital fame, cited in eBoys.

33/ “All things being equal, a heavy reliance on marketing spend will hurt your valuation multiple.” – Bill Gurley

34/ If you were to double or triple the price of your product, what percent of customers would churn? If the answer is anything south of 50%, why aren’t you doing it?

35/ Getting big customers and raising capital is often a chicken-and-egg game. Sometimes, you need brand name customers, before you can raise. And other times, you need capital before you can build at the scale for brand name customers. So, when I read about Vinod Khosla’s advice for Joe Kraus: “We had $1 million in the bank and we didn’t know what we were going to bid. We sat down in my office, all on the floor. Vinod said we should bid $3 million. I was like, ‘How do we bid $3 million? We only have $1 million in the bank.’ And he said, ‘Well, if we win, I’m pretty sure we can raise it, but if we don’t win, I don’t know how we’re going to raise.'”

36/ “Your ability to raise money is your strategy. If you’re great at it, build any business with network effects. If you’re bad at fundraising, it’s strategically better to build a subscription business with no network effects.” – Elizabeth Yin

37/ Be willing to fire certain customers (when things get tough or in an economic downturn). If they aren’t critical strategic partners or are loss making, figure out how to make them profitable. If you can, renegotiate contracts, like cheaper contracts for longer durations. If not, let them go. Make it easy to offboard.

38/ An average SaaS business, that doesn’t have product-led growth, is spending about 50% of revenue on sales and marketing. Those that are in hyper growth are spending 60%. – Jason Lemkin

39/ “The only thing worse than selling nothing is selling a few. If you sell nothing, you stick a bullet in it and move on. When you sell a few, you get hope. People keep funding even though it’s really not viable.” – Frank Slootman

40/ If your customer wants to cancel their auto-renew subscription to your product, you should refund them a 100% of their cost. – Jason Lemkin

41/ “Your price isn’t too high. Your perceived value is too low.” – Codie Sanchez

42/ “15-20% of IT spend is in the cloud.” And it’s likely to go up. – Alex Kayyal

43/ If your customers are willing to pay you way ahead of when your service is executed, you have an unfair and unparalleled cashflow advantage. – Harry Stebbings

44/ If you’re in the CPG business, it’s better to negotiate down the contract. “You buy 75, and you sell 60, they’re going to go, ‘Ah, I got 15,000 in inventory, it’s not a success.’ If you give them 40, and then they have to buy another 20, and they sell 60, they go, ‘Wow, we ordered 50 [(I think he meant 20)] more than our original order.’ You’re still at 60, but one, they’re disappointed, and one, they’re not. You’re still playing some weird mind games a little bit so that they feel good about whatever number was there.” – Todd McFarlane

45/ “If you are under 100 customer/users, get 20 of them in a Whatsapp Group. You will:

  • Get much higher quality feedback, faster, on the current product.
  • They will be WAY more proactive in suggesting future product ideas and helping you shape the product roadmap.
  • It will create a closer relationship between you and them and they will become champions of the product and company. People like to feel they had a hand in the creation process.”
    – Harry Stebbings

46/ Create multiple bank accounts with different banks to keep your cash, to hedge against the risk of a bank run. The risk is very unlikely to occur, but non-zero, especially in a recessionary market. Inspired by SVB on March 10, 2023. More context here, and what happened after here. Breakdowns here, here and here.

47/ “Keep two core operating accounts, each with 3-6 months of cash. Maintain a third account for “excess cash” to be invested in safe, liquid options to generate slightly more income.” – A bunch of firms

48/ “Maintain an emergency line of credit. Obtain a line of credit from one of  your core banks that can fund the company for 6 months. Do not touch it unless necessary.” – A bunch of firms

49/ In case of a bank run: “1/ Freeze outgoing payments, let vendors know you need 60 days, 2/ Figure out payroll & let your investors know exactly when cash out, 3/ Attempt emergency bridge with existing investors; hopefully reasonable terms or senior debt (but given valuation reset this is a HARD discussion for many), 4/ Figure out who can take deferred salary on management team, which will extend runway, 5/ Make sure you communicate reality to team honestly so they can make similar plan for their household, 6/ Make sure you talk to HR about legal issues around payroll shortfall — which hopefully this doesn’t come to, 7/ In future, keep cash in 3 different banks.” – Jason Calacanis

50/ “Whenever a CEO blames their bad performance on the economy, I knew I had a really crappy CEO. ‘Cause it wasn’t the economy, it was a bad product-market fit. The dogs didn’t wanna eat the dogfood. Sometimes the economy can make that a little worse, but if people are desperate for your product, it doesn’t matter if the times are good or bad, they’re going to buy your product.” – Andy Rachleff

51/ General reference points for ACV and time to close are: $1K in 1 week. $10K in 1 month. $100K in 3 months. $300K in 6 months. And $1M in 12 months. – Brian Murray

52/ A B2B salesperson’s script from Seth Godin. “Look, you’ve told me you have this big problem you need to solve. You have a five million assembly line that’s letting you down, blah blah. If we can solve this problem together, are you ready to install our system? Because if it’s not real, let’s not play. Don’t waste my time, I won’t waste yours. You’re not going to buy from me because I’m going to take you to the golf course. You’re not going to buy from me because our RFP is going to come in cheaper than somebody else’s. You want my valuable time? I’m going to engage with you, and tell you the truth and you’ll tell me the truth. You’re going to draw your org chart for me. You’re going to tell me other complicated products you’ve bought and why your company bought them. And I’m going to get you promoted by teaching you how to buy the thing that’s going to save your assembly line. Let’s get real or let’s not play.” – Seth Godin

53/ “The job of a pre-seed founder is to turn investor dollars into insights that get the company closer to finding product-market fit.” – Charles Hudson

Culture

54/ Deliver (bad) news promptly. Keep to a schedule. The longer you delay, the more you lose your team’s confidence in you. For example, if your updates come out every other Friday, and you miss a few days, your team members notice. Your team is capable of taking the tough news. This is what they signed up for. Explain a stumble before it materially impacts your bottom line – revenue. Inspired by Jason Lemkin.

55/ “Process saves us from the poverty of our intentions.” – Seth Godin quoting Elizabeth King

56/ “It’s easier, even fun, to do something hard when you believe you’re doing something that no one else can. It’s really hard to go to work every day to build the same thing, or an even worse version, of what others are already building. As a result, there was a huge talent drain from the company.” – Packy McCormick

57/ Lead your team with authenticity and transparency. “Employees have a ridiculously high bullshit detector, more so than anyone externally, because they know you better. They know the internal brand better.” So you have to be honest with them. “Here’s what we’re going to tell you. Here’s what we won’t, and here’s why.” Set clear expectations and leave nothing to doubt. – Nairi Hourdajian

58/ When someone ask Jeff Bezos, when does an internal experiment get killed? He says, “When the last person with good judgment gives up.” – Bill Gurley citing Jeff Bezos

59/ “Getting too high on a ‘yes’ can prepare you for an even bigger fall at the next ‘no.’ Maintaining your composure in the high moments can be just as important as not getting too down in the low moments.” – Amber Illig

60/ “Most have an unlimited policy paired with a results-driven culture. This means it’s up to the employee to manage their time appropriately. For example, no one bats an eye when the top performing sales person takes a 3 week vacation. But if someone is not pulling their weight and vacationing all the time, the perception is that they’re not cut out for a startup.” – Amber Illig

61/ “Whenever we’re dealing with a problem and we call a meeting to talk about the problem, I always start with this structure. We are here to solve a problem. So the one option that we know we’re not going to leave the room doing is the status quo. That is off the table. So whenever we finish this meeting, I want to talk about what option we’re taking, but it’s not going to be what we’re currently doing.” – Tobi Lutke

62/ “[Peter Reinhardt] would put plants in different parts of the office in order for the equilibrium of oxygen and CO2 to be the same. He would put noise machines in the perfectly placed areas and then reallocate the types of teams that needed to be by certain types of noise so that the decibel levels were consistent. What I don’t think people realize about founders is that they are maniacal about the details. They are unbelievable about the things that they see.” – Joubin Mirzadegan

63/ “Leadership is disappointing people at a rate they can absorb.” – Claire Hughes Johnson

64/ Page 19 Thinking: If you were to crowdsource the writing of a book, someone has to start inking the 19th page. And it’s gotta be good, but you can’t make it great on the first try. So you have to ask someone else to make it better, and they have to ask another to make their edits even better. And so on. Until page 19 looks like a real page 19. “Once you understand that you live in a page 19 world, the pressure is on for you to put out work that can generously be criticized. Don’t ship junk, not allowed, but create the conditions for the thing you’re noodling on to become real. That doesn’t happen by you hoarding it until it’s perfect. It happens by you creating a process for it to get better.” – Seth Godin

Hiring

65/ Hiring when your valuation is insanely high is really hard. Their options could very much be valueless, since they would depend on the next valuation being even higher, which either means you grow faster than valuations fall (market falls in a bear market) or you extend your runway before you need to fundraise again.

66/ It’s easier to retain great talent in a recession, but much harder to retain them during an expansionary market. Talent in a boom market have too many options. There’s more demand than there is supply of talent in a boom market.

67/ If you’re a company with low employee churn, you can afford to wait a while longer to find someone who is 20% better in the role. – Luis von Ahn

68/ “[Fractional CMOs and CROs often] want to be strategists.  Tell you where to focus, and what to do better. But the thing is, what you almost always just need is a great full-time leader to implement all the ideas.” – Jason Lemkin. The only time it works is when the fractional exec owns the KPI and the function, where they work at least 60% of the time OR they work part-time and help you hire a full-time VP.

69/ Hire your first full-time comms person after you hit product-market fit, when you are no longer finding your first customers, but looking to grow your customer base. – Nairi Hourdajian

70/ “Ask [a high-performing hire] if there’s someone senior in her career that’s been a great manager, and if so, bring them on as an equity-compensated advisor to your company. If there’s someone in industry she really admires but doesn’t yet know, reach out to them on her behalf.” Give her an advisor equity budget, so they can bring on a mentor or someone they really respect in the industry. As a founder, create a safe space for both of them. Monthly 1:1s and as-needed tactical advice, introductions, and so on. And don’t ask that mentor to give performance feedback “because if so it’s less likely they’ll have honest, open conversations.” – Hunter Walk

71/ Hire talent over experience for marketing and product. “In marketing and product I prefer people with less experience and a lot of talent so we can teach them how we do things. They don’t have to unlearn anything about how they already work. We teach them how we work. For developers it might be different because it takes a lot of time to be a really good developer, and it’s relatively easy moving from one environment to another.” – Avishai Abrahami

72/ If you’re going to use an executive search firm to hire an exec, ask the firm three questions: “1/ Walk me through your hardest search? 2/ Walk me through a failed search? 3/ Why did it fail? 4/ How do you assess whether an exec is a good fit?” You should be interviewing the firm as much as the candidate. Watch out for “a firm with a history of candidates leaving in a short timeframe. Avoid firms that recycle the same execs.” – Yin Wu

73/ Before signing with any recruiting agency, ask “What happens if the person hired is a bad fit? (Many firms will restart the search to align incentives.) Is there a time limit for the search? (Some firms cap the search at 6 months. We’ve worked with firms without caps.)” – Yin Wu

Governance

74/ “The higher the frequency and quality of a young startup’s investor update, the more likely they are to succeed in the long run.” – Niko Bonatsos

75/ Five metrics you should include in your monthly investor updates:

  • Monthly revenue and burn, in a chart, for the whole year
  • Cash in the bank, at a specific date, and runway based on that
  • Quarterly performance for the past 8 quarters, in a chart
  • Target for the quarter AND year and how you are trending toward it
  • Headcount
    – Jason Calacanis

76/ Another reason to send great, consistent investor updates is that when prospective investors backchannel, you want to set your earlier investors up for success on how they pitch you.

77/ If you don’t have a board yet, still have an “investor meeting.” “Create investor meetings where you invite all your investors to do an in-person + Google Hangout’ed review every 60 days.  They don’t have to come.  But they can.” – Jason Lemkin

78/ “[The] most important measures of success for a CEO [are] internal satisfaction, investor relations and consumer support.” – Bob Iger

79/ “Entrepreneurs have control when things work; VCs have control when they don’t.” – Fred Wilson

80/ If an investor really wants their money back (usually when VCs have buyer’s remorse), there are times when they force you to sell or shut down your companies. Instead, ask them, “What would it take to get you off my cap table?” – Chris Neumann

Product

81/ “The ones that focus, statistically, win at a much higher rate than the ones that try to do two or three things at once.” – Bruce Dunlevie, cited in eBoys

82/ Once you launch, you’re going to be measured against how quickly you can ramp up to $1M ARR. One year is good. Nine months is great.

83/ The more layers of friction in the onboarding process (i.e. SSN, email address, phone number, survey questions), the better you know your user, but the higher the dropoff rate. For PayPal, for every step a user had to take to sign up, there was a dropoff rate of 30%. – Max Levchin in Founders at Work

84/ “Product-market fit can be thought of as progressively eliminating all Herbies until there are no more Herbies. Then, you’re in a mode where you can invest in growth because it’s frictionless.” – Mike Maples Jr. (In the book, The Goal, the trek is often delayed by a large kid called Herbie. As you can imagine, the group only moves as quickly as their weakest link.)

85/ “There’s a ruthlessness in the way Dylan finds sources, uses them and moves on.” – No Direction Home. Be ruthless about how knowledgeable you can be about your customers, about your problem space, and about your product. The knowledge compounds.

Competition

86/ “If you patent [software], you make it public. Even if you don’t know someone’s infringing, they will still be getting the benefit. Instead, we just chose to keep it a trade secret and not show it to anyone.” – Max Levchin in Founders at Work

87/ If you know you’re building in a hot space, and your competitors are being bought by private equity firms, share that with your (prospective) investors. The competitors’ innovation slows, and optimizing for profit and the balance sheet becomes a priority when PE firms come in. – David Sacks

88/ “As a startup, you always want to compete against someone who has ‘managed dissatisfaction at the heart of their business model.” – Marc Randolph

89/ “You cannot overtake 15 cars in sunny weather… but you can when it’s raining.” – Ayrton Senna. It’s easier to overtake your competitors in tough markets than great markets.

90/ “Having a real, large competitor is better than having none at all!” – Anna Khan

Brand/Marketing/GTM

91/ If you’re a consumer product, your goal should be to become next year’s hottest Halloween costume. Your goal shouldn’t be fit into a social trend, but to define one.

92/ Don’t be married to the name of your company. 40% of NFX‘s early stage investments change their names after they invest in the seed.

93/ The viral factor doesn’t take into account the time factor of virality. In other words, how long it takes for users to bring on non-users. Might be better instead to use an exponential formula. “Think of a basic exponential equation: X to the Y power. X is the branching factor, in each cycle how many new people do you spread to. Y is the number of cycles you can execute in a given time period. The path to success is typically the combination of a high branching factor combined with a fast cycle time.” – Adam Nash

94/ In a down market, you may not need as big of a marketing budget as you thought. Your competitors are likely not spending as much, if at all, to win the same keywords as before.

Legal

95/ “Nothing is more expensive than a cheap lawyer.” – Nolan Church

The hard questions

96/ “I’d love to kill it and I’d hate to kill it. You know that emotion is exactly the emotion you feel when it’s time to shut it down.” – Andy Rachleff, cited in eBoys

97/ “Inexperienced founders are usually too slow to fire bad people. Here’s a trick that may help. Have all the cofounders separately think of someone who should probably be fired, then compare notes. If they all thought of the same person…” – Paul Graham

98/ When you’re in crisis, find your OAR. Overcorrect, action, retreat. Overcorrect, do more than you think you need to. For instance, lay off more than you think you need to. Actions can’t only be with words. Words are cheap after all. And retreat, know when it’s time to take a step back. “Sometimes you just have to do your time in the barrel. When you’re in the barrel, you stay in the barrel. And then you slowly come out of it.” – Nairi Hourdajian

99/ “A half measure is usually something a management team lands on because it’s easy. If a decision is easy, it’s probably a half measure. If it’s hard, if it’s really damn hard… if it’s controversial, you’re probably doing enough of it. The other thing is a half measure often doesn’t have an end result or goal in mind. If you have a really specific goal, and implementing that goal is difficult, that’s probably doing your job. That’s probably what’s necessary.” – Tom Loverro

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Another 99 Pieces of Unsolicited, (Possibly) Ungooglable Advice For Investors

feather, sunset

In an industry that is heavily apprenticeship-driven, the more tactical advice one gets, the faster they grow. Historically, that meant a senior partner taking you under their wing. Or maybe 2-3. While I’ve been lucky to work and learn alongside some of the world’s most exceptional minds in the funding landscape, I’ve always found it helpful to have multiple teachers. Some in the form of books. Others in the form of shorter form content. Tweets. Social posts. Podcasts. And of course, from the insightful conversations that I have weekly. At the same time, in hopes of supporting the growth of others in this industry (such a small world, but it just isn’t helpful enough), this blog has been and will continue to be my vehicle for stewarding information and insights from the best.

Just like in both of my initial pieces of 99 pieces of advice for investors and founders I wrote in April 2022, this will be a continuation and an evolution of the last. While this will cover more of the same topics as last time, like startup investing, pitching to LPs, and fund strategy, I’m personally really excited about the some new categories, like succession planning, tax, and how to think about exiting positions.

And while I do write long form posts most of the time, and have been guilty of well… longerrrrrr form essays (and maybe one day with even more r’s), like this or this… I digress. While I do enjoy long form expositions, some things are best shared without superfluousness.

Most of the advice below captures the essence of a TikTok or Instagram Reel or a YouTube short. Choose your fancy. Many of which answers the age-old podcast question: “If you were to share one piece of advice with your [insert age]-year old self, what would it be?” Or “What advice would you give someone starting their first fund today?“

And now with “new and improved UI” (don’t get too excited, just number count of soundbites in each category), each fall in one of ten categories:

  1. General advice (7)
  2. Investing — Deal flow, theses, diligence (19)
  3. Value add (6)
  4. Pitching to LPs (21)
  5. Fund strategy/portfolio construction (23)
  6. Selling positions (5)
  7. LP management (8)
  8. SPVs/Syndicates (5)
  9. Succession planning (2)
  10. Tax planning (3)

General advice

1/ You can’t be in every good deal, but every deal you’re in better be good.

2/ “You’re not defined by your worst investment. All angels will have failures in their portfolio. It’s part of the process.” – Brian Rumao

3/ “The weird thing is when late stage went from the hardest part of venture to the easiest. And that should have been the flag to everybody.” – Jason Lemkin *timestamped May 2022

4/ “The older you get, the younger your mentors should be.” – Samir Kaji

5/ “Your brand is what people say about you when you’re not in the room. It’s their first reaction when they see an email from you in their inbox. You build that brand — or not — with every interaction.” – Chris Fralic

6/ “Never let a good crisis go to waste.” – Winston Churchill

7/ When there’s risk involved, don’t let the outcome determine the quality of your decision. – Andy Rachleff

Investing — Deal flow, theses, diligence

8/ When assessing startups against their incumbents, consider their incumbents’ ability to hire top talent. For instance, if the incumbents are banks that are known for slower logistical and bureaucratic procedures, it’s easy to hire the best talent out there. On the other hand, if the incumbents are Coinbase, that’s still a fairly young, sexy company that’s innovating quickly, hiring top (technical) talent is more challenging. Shared by a former executive and founder with 2 exits, turned fund manager with 2 funds.

9/ If you’re not getting a call from a founder when they’re in trouble, you’re probably not getting a call from a founder when they’re raising their next big round. – Zach Coelius

10/ Pick great market inflection points to bet on. “The founder is the surfer. The product is the surfboard. The market is the wave. The wave matters most.” If you bet on a good surfer on a bad wave, they’re not going to get you the returns you want. Some Sequoia partner.

11/ Ask for investor updates (before investing). Before you invest, ask for the most recent investor updates. Helps you understand how founders think and communicate. – Brian Rumao

12/ Align with the founders, but also employees on valuations and dilution. – Nikhil Basu Trivedi

13/ The earlier you invest and the more you care about ownership, the more active role you’re expected to take in your portfolio company. You can’t expect to take large ownerships, and not actively help anymore. If you want to be a hands-off investor, you don’t have a right to fight for ownership. In a bull market, founders get picky about who’s on their cap table (as they should be). Focus on your check size to helpfulness (CS:H) ratio. Inspired by Jason Lemkin.

14/ “We have no fear. If we could find God’s phone number, we’d call him.” – David Beirne of Benchmark Capital fame, cited in eBoys. You are never too good to cold-call.

15/ Create a list of your favorite builders (i.e. engineers, community managers, executives, etc.). Then scrape Delaware incorporation docs regularly to see if any on the former list pop up in the search. If so, reach out to them early.

16/ Ask the founders to see different versions of the pitch deck. While we always say, “investors invest in lines, not dots”, oftentimes it’s hard to measure the slope (rather than y-intercept) when you’re meeting only with a founder at the beginning of their fundraise and not sooner. But one way to see is watch how much the pitch decks changed over time (and how quickly the founders incorporated feedback).

17/ Invest in companies that will be timeless. Where there will still be customers in a recession.

18/ If the competitors of the startup are being bought by private equity firms, then it may be a lucrative space to invest into. The competitors’ innovation slows, and optimizing for profit and the balance sheet becomes a priority when PE firms come in. – David Sacks

19/ There is a superpower to be speaking the same native language as the founders you back (and for them to their customers). Try to understand them for their position of strength.

20/ “The market you’re exiting in is not the one you’re funding now.” – Ben Narasin

21/ “There’s another phenomenon that happens in a time like this: Google’s not hiring. Facebook’s not hiring. People are clamping down. Guess what happens to their most advanced projects? They go. And guess who are the best people in any large company? The best people are working on the most advanced projects. They are the ones who want to do visionary things. They’re the fodder entrepreneur for venture capitalists. So I think many more of the best people — not because they’re not getting paid huge raises in compensation — but because they’re working on less interesting projects — will leave to follow their vision.” – Vinod Khosla (timestamped Oct 28, 2022)

22/ “Process saves us from the poverty of our intentions.” – Seth Godin quoting Elizabeth King

23/ “Funny people are really underrated. […] Charismatic leaders are pretty funny. Humor is a really important emotion for two reasons. One is if you can evoke it a lot and be funny, you can create a sense of bonding. Generally speaking, in a remote world, there is a shortage of emotions you feel. An exchange between us now as we stare at each other in our computer monitors is maybe 1/100th of what it would have been in the real world. When you think about it, why do movies succeed? Movies substitute the real world interaction with synthetic emotion. So… horror, humor, action, drama. So you want leaders who can do the same over Zoom. That’s why Peloton instructors have all the jokes that they’re saying. It’s same exact effect.

“But there is a second reason to why humor matters, which is if you were to imagine a Maslow’s Hierarchy of Needs, I at least find with myself, I’m not able to think of a joke if basic stuff isn’t right. […] You do have to be careful of the ‘court jester’ type. These are people who are so insecure that they’ll do anything to get a [cheap] laugh.” – Daniel Gross. For example, cursing or vulgar jokes or making fun of others are examples of cheap laughter.

24/ For follow-on checks, Founders Fund and Saastr invest 10% of the fund in each of their “winners”. – Jason Lemkin

25/ “Whenever a CEO blames their bad performance on the economy, I knew I had a really crappy CEO. ‘Cause it wasn’t the economy, it was a bad product-market fit. The dogs didn’t wanna eat the dogfood. Sometimes the economy can make that a little worse, but if people are desperate for your product, it doesn’t matter if the times are good or bad, they’re going to buy your product.” – Andy Rachleff

26/ “[Peter Reinhardt] would put plants in different parts of the office in order for the equilibrium of oxygen and CO2 to be the same. He would put noise machines in the perfectly placed areas and then reallocate the types of teams that needed to be by certain types of noise so that the decibel levels were consistent. What I don’t think people realize about founders is that they are maniacal about the details. They are unbelievable about the things that they see.” – Joubin Mirzadegan

Value add

27/ Everyone says they’re a value add investor or founder friendly. And every founder goes through these 10-15 moments in their founder journey from which they lose sleep over. How many of your portfolio founders call you first if shit hits the fan? Those will be who you’re remembered by. No other portfolio founders will remember you.

28/ The network you bring is table stakes. That will neither help you win deals or raise LP capital when it really matters.

29/ “Dirty secret of VC platform teams: they are more about scaling the GP than the founder.” – Sarah Tavel

30/ Are you uniquely positioned to get allocation on the cap table because you can be a value add to these companies? – Vijen Patel

31/ Sometimes the most helpful thing you can do is to say no. When founders ask for introductions, and you don’t think they’re a good fit for your investor network, “It’ll be tough for you to fundraise right now. And if you jump in a conversation now with these other investors, it’ll hurt your ability to fundraise when you finally iron out those 1-2 key metrics and get to that inflection point.”

32/ Before the term sheet is signed, sit down with them and say this. “‘Listen. The chances this company gets to the finish line – the finish line being this fantastic exit – we don’t know what they are. But what I do know is that there is a chance, a high probability, that the company will fail. And I want you to think about this as an opportunity cost. I want you to think about every day you walk in the door to this company or turn on this Zoom as an opportunity cost. If it is not working, I want you to tell me, ‘It’s not working.’ And let’s have just a dispassionate conversation about what that means, so that we don’t waste any more time trying to make it work. And I promise you I will do the same.’

“And if you can set those guidelines from the beginning, you can move onto something that might have better timing. The founder can. And I can. Be aware of what failure looks like.” – Maha Ibrahim

Pitching to LPs

33/ Don’t promise your LPs guaranteed co-investing rights to go directly on the cap table of your portfolio companies. Let the founders decide who gets to invest on their cap tables. – Samir Kaji.

34/ A typical emerging fund takes 1-2 years to raise <$10M. Plan for that timeframe. A fast raise is 6 months. – Elizabeth Yin *timestamped April 2022

35/ To LPs there are 4 main metrics that are of note. Gross and net IRR to show how cash efficient you are, as well as how your portfolio is marked up. TVPI and DPI to show your paper returns and cash you’ve returned to your LPs, respectively. – Chamath Palihapitiya

36/ When you’re pitching institutional LPs (i.e. endowments, pension funds, university investment offices, etc.), you’re bet against 10-year life cycles and portfolio strategies. When benchmarking metrics (i.e. IRRs and TVPIs/DPIs), you have to show you can outperform other asset classes (i.e. real estate) and the public market equivalent (PME). Comparing and contrasting is often the most effective.

37/ When you’re pitching individual LPs (i.e. angels, or “belief capital), largely true for Fund I’s and II’s, it’s about personality and promise. Do people like you? Do you bring in great top of funnel deals? Are you different?

38/ “Don’t run out of leads.” You want to be constantly meeting new investors, ’cause you don’t want to be in a situation where you have to go back and convince people who are clearly not sold. – Elizabeth Yin

39/ If your Fund I consists of mostly individual LPs (i.e. accredited investors, but not qualified purchasers), you’re going to have to fundraise from scratch in Fund II and III. Since they have less of a net worth than institutional LPs, they most likely don’t have the capital to: (a) re-commit for a subsequent fund, (b) and even if they do, they won’t have enough to meet the minimum check size, assuming Fund II/III is bigger than Fund I. Inspired by Elizabeth Yin.

40/ Ask LPs what they like and what they don’t like about the pitch deck, and use each conversation as a learning and refining process.

41/ Figure out how much money you’re capable of raising in Fund I, and raise 25% less. It’s much better to be oversubscribed than suffer from lack of momentum. And leverage the “oversubscription” to help you raise Fund II, III, and so on. Told me to by someone who has sat on over 6 LPACs(LP advisory committees) in his career so far.

42/ The median family office check into first-time fund managers is $750K, with over 80% of family offices investing into first-time managers.

43/ “Does the world need another VC fund?” Most LPs don’t think so, so you need to convince them why you should exist.

44/ Before wasting your time pitching to some LPs, ask “Are you actively investing in venture funds at this time?” Many take meetings, but aren’t. Your time is precious.

45/ You’re going to raise from friends and family in the beginning. Your second cohort of LPs will be people you have a substantial network to. In other words, investors who you have many duplicate warm connections with, so that they can easily qualify your ability. – Dylan Weening

46/ In a recessionary market, LPs find themselves rebalancing their asset allocations. As their public market assets go down, they find themselves overallocated into venture. As such, they’re investing in less new managers. So in order to raise as an emerging GP from these LPs, you need to replace someone they’re currently investing into. That means you need to: (a) outperform them (4x TVPI is table stakes), and (b) have one compelling story on why you, backed by numbers.

47/ When doing diligence, sophisticated LPs evaluate you based on consistency. They will evaluate fund/portfolio performance with AND without your top investment. Hence, they expect a minimum number of investments in your portfolio – usually 20 to 30.

48/ Some LPs have been burned by staying invested in yesterday’s firms for too long. The top firms a decade ago are not the same top firms today. These firms often have an emerging GP thesis.

49/ “This is not a one-trick-pony relationship. You’re a capital allocator. The cost of finding new relationships to build is significant. You need to seek long-term capital allocation partners. Have a three to five fund view – multi-decade relationships. How repeatable is your success?” Shared by an LP in 30 funds.

50/ “The best filter for this is figuring out what [an LP’s] minimum check size is. And, is that greater than 20% of your fund size? If so, it won’t be a good fit.” – Sarah Smith

51/ “There’s a thing called ’round tripping.’ If a fund in India invests in a fund that’s built in the US, then invests back into Indian startups, that’s round tripping. And unfortunately, not allowed.” – Shiva Singh Sangwan

52/ “Before you say yes to LPs, check the CFIUS rules. Under those guidelines, you may not be able to take money from certain countries and parties.” – Arjun Dev Arora

53/ “Valuations are not the way you judge a venture capitalist, or multiples of their fund. […] The way that I judge a venture capitalist is by how many companies did they back that grew into $100M revenue businesses.” – Andy Rachleff

Fund strategy/portfolio construction

54/ It’s often good practice to not lead syndicates the same time as you’re raising for a fund (outside of SPVs to maintain pro rata). It gives too much optionality to LPs. For the most part, it’s easier sell a deal than it is to sell a fund.

55/ Typical GP commits are 1-2% of the fund. If you’re unable to do so (or even if you are), good practices include recycling fees and deal warehousing. The latter is where you keep a portfolio of personal investments in storage before launching the fund. Warehousing deals de-risk the deal by allowing LPs to participate in marked-up deals at more lucrative, aka lower valuations.

56/ In a downturn, investors are still funding startups but adding in more terms in the form of side letters. The riskier the bet, the greater the liquidation preferences, anti-dilution provisions, and minimum hurdle rate expectations.*timestamped in April 2022

57/ “Bank loans for VC funds have short paybacks (90-180 days). The 2+ year paybacks relate to large PE funds. IRR boost is minimal in VC.” – Samir Kaji

58/ Don’t be scared to recycle carry early. Most funds suffer from under-deployment, which usually leads VCs to deploy the last 25% of capital either towards deals with high valuations or in difficult situations (down rounds, pay to play rounds). – Villi Iltchev

59/ While pro rata rights are technically legally binding, earn the right to invest in subsequent rounds, rather than just expect it.

60/ Liquidation preferences have little impact on fund returns, which makes sense when you actually think about it, but many VCs add these provisions to protect their downside. Data shows that only the bottom quartile funds see IRR impacted greater than 1% due to liquidation preferences. Returns are driven by the winners in your portfolio where liquidation preferences don’t matter. There’s a big difference in a strategy to win versus a strategy not to lose.

61/ IRR is a vanity metric for funds early in their life cycle. While it can be a useful metric for LPs to compare across vintages and their portfolio, overoptimizing for it gives a false sense of hope. Why? IRR values quick capital deployment. Recycling hurts IRR. Many things change over the span of a 10-15 year fund. – Seth Levine.

62/ Ownership and pro rata allocations are inversely proportional to the number of portfolio companies in a fund. Many managers can’t get 100% of their pro rata allocations, but rather only 50-75% of their allocations. Inspired by Henri Pierre-Jacques.

63/ Venture reserves make less sense in a bull market. Reserves are usually put into a fund’s winners. But in a hot market, a larger percentage of your portfolio companies get mark ups – making it harder to differentiate signal from noise. Reserves make sense in a bear market when it’s easier to differentiate signal from noise. In a bull market, it might be better to have no reserves, and spin up SPVs for a follow-on strategy.

64/ Your ability to get into later rounds, not just ’cause of pro-rata rights, should be a big determinant if you have a reserve strategy. Can you earn your allocation in later rounds? Will founders fight for you even when downstream investors want more equity? The best companies are hot commodities. Even if you have a follow-on strategy, you might not be able to get in those subsequent rounds.

65/ If you want to include more than 99 accredited investors in your fund, set up a parallel structure where you have one fund for accredited investors (<$10M) to include 249 accredited investors, and another fund for qualified purchasers (QPs).

66/ “The best way to protect yourself against the downside is to enjoy every bit of the upside.” – Bill Gurley

67/ If you have a parallel fund structure (i.e. one for accredited investors, one for qualified purchasers (QPs)) and you’re going through rolling closes, understand that your initial allocation in each deal will change as a function of each fund’s committed capital from LPs.

For example, let’s say you’re raising a hypothetical $100M fund – a $10M fund for accredited investors, and $90M for QPs. Let’s call the $10M fund Fund IA, and the $90M fund Fund I. On average, QPs take much longer to make a decision, so you’re likely to close your Fund IA before you close Fund I. As such, your first investments out of the fund might be 50-50 from each fund. But as you finish closing your Fund I, you will need to rebalance your allocation into earlier deals, like changing it from a 50-50 allocation between the two funds to 90-10. As such, in your term sheets, make sure you include the “right to transfer securities to affiliates.” And make it clear to your founders why that’s in there before everyone signs.

68/ If you’re building a concentrated portfolio, think about portfolio construction from a bottom-up perspective, rather than top-down. How many unicorns/decacorns do you need to return the fund? How often have you historically seen them in your inbox? That’ll be your deployment schedule. And subsequently, your capital call schedule.

69/ “Fund management is irrelevant unless there are winners in the portfolio.” – Laura Thompson

70/ Calculate your mark ups on priced rounds rather than valuation caps on SAFEs. Your TVPI and IRR may look nice in the short-term, and may help you raise from individual LPs. But once you start talking to institutions, you look deceitful or have no idea what you’re doing.

71/ Avoid overly large GP commits. If you invest too much of your own net worth into a fund, you’re going to make decisions that sacrifice the long game of the fund for short term personal liquidity, like selling secondaries to buy a house. Don’t go higher than 10% of your net worth. – Sheel Mohnot

72/ “For funds that are <$20MM, the GP commitment is fairly meaningless in the evaluation of a fund. Either the person is already taking a great opportunity cost by running such a small fund or has independent personal wealth where a small GP commitment is irrelevant to them.” – Samir Kaji

73/ “Most LPs allow you to reinvest returns 18-36 months after the investment period. The early wins are often small and don’t impact the returns so you are better off reinvesting to go for another unicorn. This is a game of outliers.” – Henri Pierre-Jacques

74/ “Management fee schedule adjustments: Pause or slow down fees in ’23 (with authority delegated to LPAC to avoid conflicts of interest)” – Chris Harvey (timestamped Feb 13, 2023). A way to leverage your LPAC to communicate fund decisions to the rest of your LPs

75/ “What % of companies successfully got funded from investment to the next round?

  • Seed —> Series A should be >35%.
  • Series A —> Series B should be >50%.
  • Series B —> Series C should be >50%.
  • And, Series C —> Series D+ should be >60%.” – Aman Verjee

76/ As a long-term investor, you have to generate at least three times the risk-free rate (3-month T-bonds, bank interest rates, etc.) to have an investment make sense in the long-term. – Chamath Palihapitiya, speaking when T-bonds’ rate is 6.5%, meaning a private investment must generate at least 20-25% for it to make sense

Selling positions

77/ “In consumer and consumer social, advocate more aggressively for selling along the way. The hype cycle of consumer means heat and traction do not have the sustainability of enterprise ARR and so more weight placed on selling some portion earlier there.” – Harry Stebbings

78/ “Pigs get fat but hogs get slaughtered. Even if we believe a company has tremendous longterm upside, it’s not inappropriate to take some money off the table in order to manage that risk. As we’re recently reminded, markets go down, not just up. Just be aware of the incentives, emotions, and other factors at play. It’s ok to behave one way before you hit your DPI target and another way after, but understand how those factors produce better or worse possible outcomes. This is also true with regards to recycling. If we can sell partially out of a position and put those proceeds into one that we believe has more incremental upside, that’s accretive to our results.” – Hunter Walk

79/ “Generally once a position is worth 3x the fund sell 1/3rd to return 1x the fund (if there is liquidity). […] For the hot names you will get a bunch of inbound. Negotiate to get a price you like. For less hot names, just talk to the investors leading the next round and see if they want to add to their position. A lot of times they do and don’t mind buying out earlier investors.” – Sheel Mohnot

80/ “For public shares, we’ve landed on the following model:

  • 1/3rd immediately (either first-day lockup expires or immediate on direct listing)
  • 1/3rd 6 months after 
  • 1/3rd up to our discretion 

Here’s why — The first third books your win. If you do seed, you likely have a huge position by the time you hold public shares. The second third allows the stock price to stabilize after the market has been hit with lots of supply from VCs doing distributions. The last third allows you to have an opinion on the stock/market — however, you can choose to distribute this third anytime, including alongside or after the previous thirds.” – Chad Byers

81/ If you’re a reasonably good fund, you should return at least 1x your fund (1x DPI) within 5-7 years. – Chamath Palihapitiya and Jason Rowley

LP management

82/ Early funds generally have 30 LPs in the fund. Fund I is often an exception.

83/ A general rule of thumb is to not have any one LP contribute more than 25% of the fund, or else you might lose control when you have such a large “shareholder”.

84/ “After my LPs wire their money, I send them an intake form where I ask the question: How would you describe yourself as an LP? I have a number of statements they can select to indicate whether they are a newer or more experienced LP, if they’d like to be more active with founders, how often they’d like to communicate with me, and if they are interested in co-investment opportunities and events. I have another question following that: If you want to be more active, what are ways you enjoy helping?” – Sarah Smith

85/ “Be thoughtful about how you’re managing your time, so that you don’t turn into a full-time venture professor. You’re an investor, a GP. That’s what you’re getting paid to do.” – Arjun Dev Arora

86/ “Avoid LPs who ask you to give up economics as a GP or change your terms. LPs who want to negotiate lower management fees, a different carry structure, or they want to own 20% of the general partnership for the next three funds are best avoided if possible. They want to change the terms that everyone else has. I wouldn’t allow that. If other LPs find out (and they eventually do), it would cause my LPs to lose trust in me and rightfully be frustrated that they got worse terms.” – Sarah Smith

87/ “If someone does ask for it, and if they aren’t a large enough check, we tell them, ‘We like to reserve this spot for our largest LPs because they have the largest exposure in our fund. We’re open to you being a member in our LPAC, if you increase your check size.” That way, you can leave the ball in their court. Either, they won’t push further or they’ll commit more capital to the fund.” – Eric Bahn

88/ “If you’re in your Fund I or II, like I am, you’re still figuring shit out. You’re still testing what works and resonates and what doesn’t. I ask them, ‘what have you seen other managers do in this situation?’” – Paige Finn Doherty

89/ “The average, for a normal venture fund, is around 5-7 years to call 90% of the capital.” – Chamath Palihapitiya

SPVs/Syndicates

90/ There are two types of syndicate leads: “marketers” and “connoisseurs.” The former focuses on volume, which lead to more noise than signal. The latter focuses on quality, and as “tastemakers” lead to higher signal over noise. As LPs, quality may matter more than quantity, especially when you’re most likely diversified by being in several other syndicates already. Inspired by Julian Weisser.

91/ If you’re warehousing SPVs for your fund, do note that the number of unique LPs in your SPV(s) count towards your accredited investor limit.

92/ If you’re an LP in an SPV and agree for it to be warehoused into a fund, you are forgoing your right to the individual deal for access to the fund’s portfolio of deals.

93/ As the syndicate lead, set the minimum check size at or less than your own check size.

94/ Your GP commit into your SPV is directly proportional to your net worth. The greater your net worth, the more you’re expected to contribute. Any less, would be a negative signal. That said, the less of a net worth you have, the more you’re expected to be a great curator of deals.

Succession planning

95/ “The best way to think about succession planning is that you have to have team members at different parts of their life. Different generations. Even if they’re non-founding partners, if they all retire at the same time, you can’t build a legacy.” – An investor with 9-figure AUM

96/ Structure your fund to have a generational off-ramp for compensation. A lot of funds are structured so that payout is done through the management company, and so owning equity in the management company becomes increasingly more expensive as the firm matures and has greater AUM, etc. So the next generation, in order to succeed the firm, must buy out the previous generation’s equity. So, leadership transitions are not easy. Instead, structure your firm so that the management company doesn’t have value, where the value is at the GP. So transitions are a lot easier. – Maha Ibrahim

Tax planning

97/ When invest in a startup via SAFEs or convertible notes, your QSBS timer counts when the SAFE converts on equity round, not during the convertible round.

98/ As a GP who takes management fees through a management company, often LLC, you don’t receive W-2’s. As such, you can’t withhold taxes, so you have to be disciplined on cash management. “Outside of federal and state tax, there is a massive self-employment tax of 12.4% on up to $147,000 of earnings. And an additional 2.9% on any earnings.” – Jarrid Tingle

99/ The origin of the 1% GP commit comes from taxation laws prior to 1996. But even now, “in order for GPs to avoid their carried interest being taxed as ordinary income vs. long-term capital gains, many GPs still follow safe harbor.” – Courtney McCrea and Sara Zulkosky. While this isolates GPs who aren’t independently wealthy or are well-capitalized, in lieu of the typical cash contribution, I see a lot more emerging GPs warehouse deals and recycle carry.

Photo by Javardh on Unsplash

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The views expressed on this blogpost are for informational purposes only. None of the views expressed herein constitute legal, investment, business, or tax advice. Any allusions or references to funds or companies are for illustrative purposes only, and should not be relied upon as investment recommendations. Consult a professional investment advisor prior to making any investment decisions.

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Why Should Sky High Valuations Matter to Employees

Earlier this week, I came across a curious quote while reading Sammy Abdullah’s notes on the book eBoys by Randall Stross, chronicling the founding and early days of Benchmark. In it, the quote read: “What’s it like recruiting when the stock price is so high? Really hard. The options offered to new employees were certain to be valueless, as they would depend on the stock ascending still higher. I mean, it’s at such a ridiculous level, there’s going to be a big fall here. The question is sort of when and how.”

2022’s VC landscape

After an insane 1.5-year run, I’ve seen valuation multiples that were 100-200x a company’s revenue get funded. At the end of the day, venture capital is belief capital. And it is not my place to criticize someone else’s belief, but I know that same belief will falter in the coming months to year. We’ve already seen public market stocks fall and VC exit values plummet 90% in Q1 this year. Tiger Global fell 7% in 2021 – its first annual loss since 2016. $10,000 invested in the basket of IPOs for 2021 would be worth $5,500 today. We’re in a correction soon. Or as Martin who I’ve had the pleasure to meet via On Deck calls it, the “Great Asset Repricing.” When exactly? I don’t know.

That said, as a function of the great repricing, VCs are coming in with more aggressive terms to hedge their bets. Greater liquidation preferences. More aggressive anti-dilution provisions. For LPs into late-stage capital allocators, they’re expecting greater minimum hurdle rates. In other words, they expect investors to have an internal rate of return (IRR) of at least 20%. Every year, an investor’s assets need to be worth 20% more than the year before. This is up from 10-12% from back in 2021, which I cited in last week’s blogpost.

And as Martin surmises, we’ll see a lot more inside rounds (investors re-upping in their own portfolio) for two reasons:

  1. Insiders have more information.
  2. Insiders tend to be more conservative on valuation.

And “companies without significant traction to face a very tough fundraising environment in the near term.”

What the hell does all this esoteric jargon mean for employees?

The best private companies are still playing ball with the ball on their side of the court. They have leverage. But most companies that were funded in the past one and a half years won’t. As such, there are four things that will and have already started to happen:

  1. You don’t raise. Cut your burn rate. Stay close to the money. Extend your runway, but set clear expectations. That’s what Alinea did at the start of the pandemic. Your team is in it for the long run. Many may choose to leave, but that is the reality.
  2. You raise, but on a flat or down round. This is better for your employees that you plan to hire, since there is a better chance that their shares will appreciate in the next funding window. But you’re not getting any fancy press releases.
  3. You raise on an up round. That’s great. You make the headlines on TC or Forbes. But it increases the pressure for both your current team members and new hires. VCs add in more aggressive terms. No one’s getting paid until investors get 2-3x their money back via a liquidity event or exit. As a founder, you have more pressure to shoot for a bigger exit than you would have needed to shoot for otherwise. Or else, the team that bled for you for years will get little to no upside for their time and effort.
  4. Or, you go out. Monetarily, no one wins.

So what can you do as a startup employee? Or as a prospective startup employee?

Just like I recommend folks to think like an LP to get a job in VC, to get a job at a startup, think like a VC. Or as Nikhil Basu Trivedi puts it, find employee-VC alignment.

Ask questions on revenue drivers. What do growth metrics look like for the last three months? How does churn and net retention look like? When do they plan to raise their next round? And simply, how much revenue is the company generating? Does the price-to-sales multiple make sense? For example, is the latest valuation of the company 200x the company’s revenue or 50x. The former is likely to come with more insane expectations from their investors. In December last year, Retool wrote a great piece why they chose to raise at a lower valuation and why that makes sense for their team members, which I highly recommend checking out.

Of course, as a startup employee, you want your shares to increase in value, but too much too quickly can be detrimental. We’ve seen the recent example with Fast. They were last valued at $580M according to Pitchbook, but were only making $600K in revenue, but was burning $10M a month. Almost a 1000x multiple!

A growth-stage startup grounded on fundamentals (i.e. traction) will likely still be able to raise. A startup funded on promises that has yet to deliver may not be able to. As Samir Kaji tweeted yesterday:

In closing

Contrary to popular opinion, a company’s valuation is not how much a startup is worth, but rather it is a bet on the chance they will be as big as their incumbent competitor. Take Yuga Labs as an example. They recently raised $450M on a $4B valuation from a16z and a number of other incredible investors. With that capital injection, they are building Otherside, their take on the metaverse integrating their various NFT properties. Epic Games, on the other hand, is valued at $31.5B. $32 billion for ease of calculation. Yuga’s $4B valuation is a bet their investors are taking that Yuga has a 12.5% chance (4/32) to be as big as Epic, and by transitive property, Fortnite.

As an employee, the bet you make is not with capital, but with time – the world’s scarcest resource. We’re coming into a world soon where cash is king. Make your judgments accordingly.

To close, I had to cite Brian Rumao‘s tweet, early investor in Fast. He boiled it down beautifully in 280 characters.

Photo by Yiran Ding on Unsplash

Disclaimer: None of this is investment advice. This content is for informational purposes only, and should not be relied upon as legal, business, investment, or tax advice. Please consult your own adviser before making any investments.

Stay up to date with the weekly cup of cognitive adventures inside venture capital and startups, as well as cataloging the history of tomorrow through the bookmarks of yesterday!

Any views expressed on this blog are mine and mine alone. They are not a representation of values held by On Deck, DECODE, or any other entity I am or have been associated with. They are for informational and entertainment purposes only. None of this is legal or investment advice. Please do your own diligence before investing in startups and consult your own adviser before making any investments.

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The Hype Rorschach Test: How To Interpret Startup Hype When Everything’s Hyped

abstract, rorschach, hype, color

Not too long ago, I quoted Phil Libin, founder of All Turtles and mmhmm (which has been my favorite virtual camera in and most likely post-pandemic), who said: “I think the most important job of a CEO is to isolate the rest of the company from fluctuations of the hype cycle because the hype cycle will destroy a company. It’ll shake it apart. In tech the hype cycles tend to be pretty intense.”

Hype is the difference in expectation and reality. Or more specifically, the disproportionate surplus of expectation. A month ago, Sarah Tavel at Benchmark wrote: “Hype — the moment, either organic or manufactured, when the perception of a startup’s significance expands ahead of the startup’s lived reality — is an inevitability. And yet, it’s hard not to view hype with a mix of both awe and fear. Hype applied at the right moment can make a startup, while the wrong moment can doom it.”

Right now, we are in a hype market. And hype has taken the venture market by storm.

We’ve all been seeing this massive and increasing velocity and magnitude of capital deployment over the last few months. Startups are getting valued more and more. In the past, the pre-money valuations I was seeing ranged from 2-on-8 to 3-on-9. Or in not so esoteric VC jargon, $2M rounds on $8M pre-money valuations ($10M post-money) to $3M rounds on $9M pre-money valuations ($12M post-money). These days, I’ve been seeing 5-on-20 or 6-on-30. Some of which are still pre-traction, or even pre-product.

Founders love it. They’re getting capital on a discount. They’re getting greater sums of money for the same dilution. Investors who invested early love it. Their paper returns are going through the roof. When looking at IRR or TVPI (total value to paid-in capital – net measurement on realized and unrealized value), higher valuations in their portfolio companies are giving investors jet fuel to raise future funds. And greater exit values on acquisition or IPO mean great paydays for early investors. Elizabeth Yin of Hustle Fund says “this incentivizes investors to throw cash at hyped up companies, instead of less buzzy startups that may be better run.”

Sarah further elaborated, “In the reality distortion field of hype, consumers lean in and invest in a platform with their time and engagement ahead of when they otherwise might have. They pursue status-seeking-work, not because they necessarily get the reward for it relative to other uses of their time, but because they expect to be rewarded for it in the future, either because of the typical rich-get-richer effect of networks, or just in the status of being an early adopter in something that ends up being big.” The same is true for investors investing in hyped startups. It’s status-seeking work.

Frankly, if you’re a founder, this is a good time to be fundraising.

Why?

  1. Capital is increasingly digital.
  2. There is more than one vehicle of early stage capital.
  3. There are only two types of capital: Tactical capital and distribution capital.

1. Capital is increasingly digital.

Of the many things COVID did, the pandemic accelerated the timeline of the venture market. Pre-pandemic, when founders started fundraising, they’d book a week-long trip to the Bay Area to talk to investors sitting on Sand Hill Road. Most meetings that week would be intro meetings and coffee chats with a diverse cast of investors. Founders would then fly back to their home base and wait to hear back. And if they did, they would fly in once again. This process would inevitably repeat over and over, as the funnel grew tighter and tighter. And hopefully, at the end of a six-to-twelve month fundraise, they’d have one, maybe a few term sheets to choose from.

Over the past 18 months, every single investor took founder meetings over Zoom. And it caused many investors to realize that they can get deals done without ever having to meet founders in-person. Of course, the pandemic forced an overcorrection in investor habits. And now that we’re coming out of isolation, the future looks like: every intro meeting will now be over Zoom, but as founders get into the DD (due diligence) phases or in-depth conversations, then they’ll fly out to meet who they will marry.

  1. It saves founders so much time, so they can focus on actually building and delivering their product to their customers. And,
  2. VCs can meet many more founders than they previously thought possible.

This has enabled investors to invest across multiple geographies and build communities that breathe outside of their central hub or THE central hub – formerly the SF Bay Area. Rather, we’re seeing the growth of startup communities around the nation and around the world.

2. There is more than one vehicle for early stage capital.

While meetings have gone virtual, the past year has led to a proliferation of financing options in the market as well. Capital as jet fuel for your company is everywhere. Founders now have unprecedented optionality to fundraise on their terms. And that’s great!

Solo capitalists

Individual GPs who raise larger funds than angels and super angels, so that they can lead and price rounds. The best part is they make faster decisions that funds with multiple partners, which may require partner buy-in for investments.

Rolling funds

With their 506c general solicitation designation, emerging fund managers raise venture funds faster than ever and can start deploying capital sooner than traditional 506b funds.

Micro- and nano-VCs

Smaller venture funds with sub-ten million in fund size deploying strategic checks and often leverage deep GP expertise. No ownership targets, and can fill rounds fast after getting a lead investor.

Equity crowdfunding

Platforms, like Republic and SeedInvest, provide community-fueled capital to startups. Let your biggest fans and customers invest in the platform they want to see more of in the future. With recent regulations, you can also raise up to $5 million via non-accredited and accredited investors on these platforms.

Accelerators/incubators

Short three-month long programs, like Y Combinator, 500 Startups, and Techstars, that write small, fast checks (~$100K) to help you reach milestones. Little diligence and one to two interviews after the application. Often paired with an amazing investor and/or advisor network, workshops, powerful communities, and some, even opportunity funds to invest in your next round.

Syndicates/SPVs

Created for the purpose of making one investment into a company a syndicate lead loves, syndicates are another ad hoc way of raising capital from accredited investor fans, leveraging the brand of syndicate leads and deploying through SPVs. Or special purpose vehicles. I know… people in venture are really creative with their naming conventions. In turn, this increases discoverability and market awareness for your product.

SPACs and privates are going public again

Companies going public mean early employees have turned into overnight millionaires. In other words, accredited investors who are looking to grow their net worth further by investing in different asset classes. Because of the hype, investing in venture-scale businesses tend to be extremely lucrative. These investors also happen to have deep vertical expertise, high-value networks, as well as hiring networks to help startups grow faster. More investors, more early stage capital.

Growth and private equity are going upstream

Big players who usually sat downstream are moving earlier and earlier, raising or investing in venture funds and acceleration programs to capture venture returns. And as a function of such, LPs have increased percent distributions into the venture asset classes, just under different names.

Pipe

Pipe‘s existed before the pandemic, but founders have turned their eye towards different financing options, like Pipe. They turn your recurring revenue into upfront capital. Say a customer has an annual contract locked in with you, but is billed monthly. With Pipe, you can get all that promised revenue now to finance your startup’s growth, instead of having only bits and pieces of cash as your customers pay you monthly. Non-dilutive capital and low risk.

3. There are only two types of capital: Tactical capital and distribution capital.

There’s an increasingly barbell distribution in the market. Scott Kupor once told Mark Suster that: “The industry’s gonna bifurcate. You’re going to end up with the mega VCs. Let’s call them the Goldman Sachs of venture capital. Or the Blackrock of venture capital. And on the other end, you’re going to end up with niche. Little, small people who own some neighborhood whether it’s video, or payments, or physical security, cybersecurity, physical products, whatever. And people in the middle are going to get caught.”

Those “little, small” players have deep product and go-to-market expertise and networks. Their checks may be small. But for an early stage company still trying to figure out product-market fit, the resources, advice, and connections are invaluable to a startup’s growth. They’re often in the weeds with you. They check your blind side. And they genuinely empathize with the problems and frustrations you experience, having gone through them not too long ago themselves. Admittedly, many happen to be former or active operators and/or entrepreneurs.

On the flip side, you have the a16z’s and Sequoias on their 15th or 20th fund. Tried and true. Brilliant track record with funds consistently north of 25% IRR. Internal rate of return, or how fast their cash is appreciating annually. LPs love them because they know these funds are going to make them money. And as any investor knows, double down on your winners. More money for the same multiples means bigger returns.

The same is true for historical players, like Tiger, Coatue, and Insight, who wire you cash to scale. They assume far less risk. Which admittedly means a smaller multiple. And to compensate for a lower multiple, they invest large injections of capital. By the time you hit scale, you already know what strategies work. All you need is just more money in your winning strategies.

You find product-market fit with tactical capital. You find scale with distribution capital.

Product-market fit is the process of finding hype. When you stop pushing and start finding the pull in the market. Scale is the process of manufacturing hype.

The bear case

But there are downsides to hype. Last month, Nikhil, founding partner at Footwork, put it better than I ever could.

Source: Nikhil Basu Trivedi on next big thing

If I could add an 8th point to Nikhil’s analysis, it’d be that investors in today’s market are incentivized to “pump and dump” their investments. Early stage investors spike up the valuations, which leads to downstream investors like Tiger Global, Coatue, Insight, and Softbank doubling down on valuation bets. Once there’s a secondary market for private shares, early stage investors then liquidate their equity to growth investors who are seeking ownership targets, or just to get a slice of the pie. This creates an ecosystem of misaligned incentives, where early stage investors are no longer in it for the long run with founders. Great fund strategy that’ll make LPs happy campers, but it leaves founders with uncommitted, temporary partners.

Sundeep Peechu of Felicis Ventures has an amazing thread on how getting the right founder-investor fit right is a huge value add. And getting founder-investor fit takes time, and sometimes a trial by fire as well. After all, it’s a long-term marriage, rather than a one-night stand. Those who don’t spend enough time “dating” before “marriage” may find a rocky road ahead when things go south.

On a 9th point, underrepresented and underestimated founders are often swept under the rug. In a hype market, VCs are forced to make faster decisions, partly due to FOMO. With faster decisions, investors do less diligence before investing. Which to the earlier point of misaligned incentives, has amplified the already-existing notion of buyer’s remorse.

When VCs go back to habits of pattern recognition, they optimize for founder/startup traits they are already familiar with. And often times, their investment track record don’t include underrepresented populations. To play devil’s advocate, the good news is that there is also a simultaneous, but comparatively slow proliferation of diverse fund managers, who are more likely to take a deeper look at the problems that underestimated founders are tackling.

What kind of curve are we on?

When many others seem to think that this hype market will end soon, last week, I heard a very interesting take on the current venture market in a chat with Frank Wang, investor at Dell Technologies Capital. “VCs have been mispricing companies. We anchor ourselves on historical valuations. But these anchors could be wrong.

“We’re at the beginning of the hype and I don’t see it slowing down. VC has been so stagnant, and there hasn’t been any innovation in venture in a long time. Growth hasn’t slowed. And Tiger [Global] and Insight [Partners] is doing venture right. Hypothetically speaking, if you invest in everything, the IRR should be zero. They are returning 20% IRR because they seem to have found that VC rounds are mispriced. So, there can be an arbitrage.

“There will be a 20% market correction in the future, but we don’t know if that’s going to happen after 100% growth, or correct then grow again. The current hype is just another set of growing pains.”

Part of me is scared for the market correction. When many founders will be forced to raise flat or down rounds. The fact is we haven’t had a serious market correction since 2009. It’s going to happen. It’s not a question of “if” but rather “when” and “how much”, as Frank acutely points out.

Investors who deploy capital fast win on growing markets – on bull markets. Or investors who deploy across several years, or what the afore-mentioned Mark Suster defines as having “time diversity“, who win on correcting markets – bear markets. Think of the former as putting all your eggs in one basket. And if it’s the winning basket, you’re seen as an oracle. If not, well, you disappear into obscurity. Think of the latter as diversifying your risk appetite – a hedging strategy. More specifically, (1) being able to dollar-cost average, and (2) having exposure to multiple emerging trends and platforms. You’re not gonna lose massive amounts of capital even in a bear market, but you also will be losing out on the outsized returns on a bull market.

Only time will tell how seriously the market will correct and when. As well as who the “oracles” are.

In closing

At the end of the day, there are really smart capital allocators arguing for both sides of the hype market. Like with all progress, the windshield is often cloudier and more muddled than the rearview mirror. As Tim Urban once wrote, “You have to remember something about what it’s like to stand on a time graph: you can’t see what’s to your right.“

Edge
Source: Tim Urban’s “The AI Revolution: The Road to Superintelligence“

And as founders are going to some great term sheets from amazing investors, I love the way Ashmeet Sidana of Engineering Capital frames it earlier this year. “A company’s success makes a VC’s reputation; a VC’s success does not make a company’s reputation. In other words to take a concrete example, Google is a great company. Google is not a great company because Sequoia invested in them. Sequoia is a great venture firm because they invested in Google.”

Whether you, the founder, can live up to the hype or not depends on your ability to find distribution before your competitors do and before your incumbents find innovation. Unfortunately, great investors might help you get there with capital, but having them on your cap table doesn’t guarantee success.

Nevertheless, the interpretation of hype is always an interesting one. There will continue to be debates if a market, product, or trend is overhyped or underhyped. The former assumes that we are on track for a near-term logarithmic curve. The latter assumes an immediate future looking like an exponential curve. The interpretation is, in many ways, a Rorschach test of our perception of the future.

Over the course of human civilization, rather than an absolutely smooth distribution, we live something closer to what Tim Urban describes as:

S-Curves
Source: Tim Urban’s “The AI Revolution: The Road to Superintelligence“

If the regression line is the mean, then we’d see the ebbs and flows of hype looking something like a sinusoidal function. As Mark Twain once said, “History doesn’t repeat itself, but it often rhymes.”

It won’t be a smooth ride. The world never is. But that’s what makes the now worth living through.

Photo by Jené Stephaniuk on Unsplash

Thank you Frank for looking over earlier drafts.

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The Investor I Am Working To Be

I wrote an essay exactly a week ago about welcoming tough founder narratives. In it, the prerequisite to play in VC is to be open-minded – to “stay positive” and to “test negative”. I’m reminded of something Tim Ferriss shared in his recent interview with Jim Collins, “It is not that beauty is hard to find, it’s that it is easy to overlook.”

In a world where it is my job to evaluate people who stretch the margins – to stretch “common sense”, it’s easy to be cynical. On the same token, it’s also easy to be incredibly optimistic. As Blake Robbins of Ludlow Ventures puts it, “the best venture capitalists [are] able to perfectly toe the line of optimist vs. pessimist.”

Since then, partly due to the semi-recent influx of investment talks I’ve seen and been a part of – the holiday mad dash, if you will, I’ve had some time to myself to re-center my purpose in the venture world.

The role of an investor

As someone on the investing side of the table, it is our job to check founders’ blind sides. To consider things they may not be aware to even consider. Drawing parallels between seemingly orthogonal parts of the business that we know because we’ve seen hundreds, if not thousands of businesses. For example, if you’re creating a plug-and-play solution – a product whose main selling point is its ease of use, the more you have to spend on your customer success team, the less effective your product is.

Of course, we merely provide insight and context to a situation, but it is the founders who have the final say.

The brand of an investor

Craig Thomas, an LP, wrote on his Substack last month: “Brand is arguably the only thing that resembles a moat in traditional venture capital.” To summarize Nikhil Basu Trivedi words briefly, brand here is constructed by how strong the synergy between the various forms of acquisition channels (i.e. content, performance marketing/ads, virality/word-of-mouth) and the players in the ecosystem (i.e. founders, investors, LPs, operators, talent, etc.) are. In simpler terms, brand is about who knows and how well they know what you stand for.

Increasingly, in the world of venture, while “picking” the right investments via conviction and a thesis still matters, it’s becoming a world of VCs “getting picked“, as Fred Destin of Stride.VC tweets. This is especially true for the deals that investors expected outsized returns on – effectively, uncapped upside.

Craig provides a great graphic for why brand matters. The blue-dotted line, which he calls the Mendoza Line for VC firms, represents y = x + b. And the best VC firms have b’s where b > 1.

Craig Thomas’ chart plotting the relationship between brand and AUM (assets under management)

He points out that the fallacy here is when firms prematurely scale. Increasing their AUM (assets under management) before establishing and growing their brand. And it’s something I’m not keen on falling for.

Seen in another light, Correlation Ventures did a study that found almost 65% of venture-backed deals fail to return on investment. And only 4% make outsized “magical returns”. Proving that b > 1 is truly easier said than done.

returns on venture backed startups is very low in most cases based on data from Correlation Ventures

There’s a saying in venture: Luck only gets better with success. It’s largely described in the context that it only takes one epic investment to get you on the radar. And I believe building a successful brand is a leading indicator of success. Of course, having a strong brand and having outsized returns are not mutually exclusive either. In a 2015 Medium post, Blake quotes Brett deMarrais of Ludlow Ventures, which I think acutely sums up what it means to be a great investor. “There is no greater compliment, as a VC, than when a founder you passed on — still sends you deal-flow and introductions.”

As you might have guessed, I’m on the brand-building phase. Craig wrote: “Brand is reputation and access.” A great brand leads to better deal flow, which leads strong signals for downstream investors. Which leads to a stronger brand. Analogized, it’s what Reid Hoffman has said all these years: “a good product with great distribution will almost always beat a great product with poor distribution.” As an investor, a VC is their own product.

In closing

To quote Ruben Harris’ first boss in Ruben’s recent interview with Garry Tan, “To become a billionaire, help a billion people.” Through a mutual friend, I first met Ruben, Artur, and Timur back in ’18 around the inception of Career Karma and when they were hosting office hours at their apartment for folks who wanted to break into tech. At the inflection point in my career, I went to one of these to meet the individuals I had only been communicating over emails with. And within 5 minutes, Ruben said: “Here’s who you’ve got to talk to…”. And gave me 2 names I hadn’t even considered reaching out to beforehand. Both ended up being great influences on my growth.

True to their mission, even prior to the founding of Career Karma, they’ve been playing the connective tissue between talent, education and occupation. From their podcast to their company, the triple threat have created an impressive brand and community of givers and hustlers. And I highly recommend checking out their podcast to hear some of their community’s stories. Here’s one of my favorites. Congratulations on your A led by Initialized, Ruben, Artur, and Timur!

Similarly, that’s the investor I’m working to be. While I still have miles more to go in building a brand, I believe I’m taking steps in the right direction.

Photo by Daan Stevens on Unsplash

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When Investor Goodwill Backfires – What It Means to be Founder-Friendly and Founder-Investor Fit

A few Fridays ago, I had the fortune of reconnecting with a founder, backed by some of the most recognizable names in the Valley and exited his business last year to a juggernaut in the data space. Now working on his second startup. And he brought something extremely curious to my attention. “Investors shouldn’t be too founder-friendly.”

I’ve talked to hundreds of founders and seen thousands of pitch decks in my short 4 years in venture capital. Yet, that Friday was the first time I’d ever heard that. And it was too bizarre for me not to double-click on. The fact that the sentence also came out of a founder’s mouth and not an investor’s bewildered me even more.

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